Thursday, 30 October 2014

Important questions surrounding the SRA proposal for minimum indemnity insurance

The SRA is introducing a
requirement on all firms to ensure they have an appropriate level of cover of
indemnity insurance cover in case they make mistakes, but reducing the
mandatory minimum level of compulsory cover to £500,000.

The rationale behind this is that
the SRA wants to ensure consumers are better protected by, for the first time,
requiring firms to make sure they have in place appropriate cover rather than
relying on meeting the minimum requirements.
The proposal will also help firms who undertake low value work to obtain
insurance at a more competitive level.
Well that’s the theory.

The proposal has yet to be
approved by the Legal Services Board though it seems from what is being said
that it will not be too long before the LSB confirms its approval.

So what will these changes mean
for the consumer and the conveyancer?

For the consumer it will make
choosing a solicitor more difficult.
The consumer will need to consider the value of the work to be
undertaken (which may not be clear to the client) and then make sure that the
solicitor has adequate insurance cover.
I wonder how many lawyers will look to reflect these changes in their marketing
material even though advertising one’s insurance cover which would be available
in the event of an error may not be the correct signal to give.

It begs the question whether the
solicitor will be obliged to disclose its minimum cover in the client care
agreement and to impose a duty on that solicitor to advise a new client if it
considers the cover it has in place may not be sufficient. In this situation will the solicitor be
required to take out ‘top up’ cover and if so will the solicitor pass that
extra cost onto the client.

Looking at these changes for the
conveyancing solicitor the questions are far greater and have some interesting
consequences. Will those solicitors who
wish to remain on lender panels lose out on the opportunity of reducing the
cost of insurance cover? It would be a logical conclusion to reach that the lenders
will be asking for a minimum level of cover of £2 million as a condition of
membership of their panels. If this is
so, will this make firms who do not undertake lender work more competitive
given they will have the freedom to choose and tailor their policies accordingly?

It will be interesting to see
whether lenders will also require solicitors who are not on their panel but who
act as agents for the purpose of discharging secured loans, to carry a similar
minimum level of cover.

In a conveyancing transaction we
may be faced with a number of professional parties who have different levels of
indemnity insurance cover. How will the
conveyancer with say a minimum of 2 million pounds of cover, and who may in the event of a
negligence claim need to seek a contribution, know the level of cover of the
other professionals in the same chain? The
level of indemnity cover of the solicitor acting for the other party may be
become a standard question for conveyancers to answer at the outset of a
transaction.

A difficulty might arise when it
becomes clear that the other solicitor involved only has reduced cover - would
you need to advise your insurer and seek clearance to proceed as well as
informing your client’s lender? If clearance
was not provided would you then write and advise that you client is not able to
proceed with the transaction unless the other solicitor ‘tops up’ its insurance?

Some insurers may make it a condition
of cover that the solicitor conveyancer will not be able to undertake work in a
transaction without knowing and checking the level of the insurance over of the
others involved.

This also begs the question what
happens if the solicitor refuses to disclose its insurance cover level. There
may be scope for suppliers such as Lawyer Check to collect this data (if it can)
and to make it available as part of its existing service.

All of these questions clearly
point to the need for the Law Society and the SRA to set out clear guidelines
on what will be expected of a solicitor not only in the discharge his or her
duty to theclient but also in the
course of a conveyancing transaction.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk